A person photographs novelty glasses shaped like “2026” featuring U.S. flag designs on display at a vendor stall ahead of New Year’s Eve celebrations, in Times Square, New York City, U.S., December 30, 2025. REUTERS/Tyrone Siu
Index Performance
At the close of the LSEG Lipper fund flows week ending December 31, 2025, U.S. broad-based indices were negative across the board. The Nasdaq declined 1.57%, followed by the Dow Jones Industrial Average (1.37%) and S&P 500 Total Return Index (-1.23%), which traded lower for the final week of 2025. The Russell 2000 faced the biggest reduction, declining 2.54%. The deceleration was driven by weakness across technology, industrials, materials, and financials, as investors appeared to take profits and rebalance ahead of the new year.
Broad-based fixed income indices recorded a slight uptick, as all major indices ended the period in positive territory. The FTSE High Yield Total Return Index had a marginal gain of 0.21%, while the FTSE Municipal Tax-Exempt Investment Grade Bond Index climbed 0.11% for the period. The FTSE U.S. Broad Investment Grade Bond Total Return Index edged lower (0.02%), pressured by weakness in longer-duration sectors.
Macro Viewpoint
As markets set sail into the new period, all eyes remain fixed on the Federal Reserve and the trajectory of monetary policy. With four new Federal Open Market Committee (FOMC) voters joining this year, investors are anxiously waiting to see if the refreshed lineup will have a meaningful impact and shift the Fed towards a more hawkish stance, given that inflation remains above the 2% target and labor conditions continue to point towards the weaker side.
According to Reuters estimates, there is an 86.2% probability that the Fed will hold rates steady at the upcoming FOMC meeting on January 28. As the year progresses, incoming economic data will play a central role in shaping policy expectations and setting the broader tone for 2026.
On the Yield Front
Yields climbed amid the holiday season. The two-year inched 1.1 basis points, the five-year climbed 1.9 basis points, and the 10-year jumped 3.1 basis points, while the 30-year rallied 3.4 basis points.
Fund Flows by Asset Type
Investors are toasting to the New Year with cash in hand. U.S. Money Market Funds finished the final week of 2025 off strong, with a substantial inflow of $80.1 billion—a threshold not seen since early December, when money market funds absorbed more than $100 billion. The takeaway is clear—investors are focusing on liquidity and bracing for uncertainty.
This caution comes amid the turbulent start to Q1 2025 in which U.S. markets entered a downward spiral with all major indices ending in the red amid looming geopolitical risks and tariff uncertainty. Despite the large inflow in U.S. Money Market Funds, U.S. Equity Funds remained in positive territory, posting $15.5 billion in net inflows, a mildly lower value than the prior’s week $20.4 billion net inflow. In the following week, equity flows were mainly dominated by U.S. Large Cap Funds, which attracted and impressive $37.2 billion. Within this week, that figure was drastically reduced to only $16.8 billion, which suggests a change in investors’ risk appetite going into the new year.
Within fixed income, U.S. Taxable Bond Funds saw $2.8 billion in net outflows, driven primarily by U.S. Short/Intermediate Government and Treasury Funds. U.S. Municipal Bond Funds recorded a modest $752 million inflow, down from $919 million the prior week, reflecting softer demand at year end.
Alternatively, U.S. Commodity Funds snapped a four-week streak of $1 billion-plus inflows, setting at a modest $679 million net inflows. U.S. Alternative Funds and U.S. Mixed Assets extended their losing streaks, posting outflows of $547 million and $130 million, respectively.
